NOTE 1. Summary of Significant Accounting Policies
A. Basis of Presentation
The accompanying principal financial statements (statements)
report USAID’s financial position and results of operations.
They have been prepared using USAID’s books and records
in accordance with Agency accounting policies, the most significant
of which are summarized in this note. The statements are presented
in accordance with the guidance and requirements of the recently
issued Office of Management and Budget (OMB) Circular A-136,
Financial Reporting Requirements, which incorporates and updates
Bulletin 01-09, Form and Content of Agency Financial Statements,
and the Government Management Reform Act of 1994.
USAID accounting policies follow generally accepted accounting
principles for the Federal government, as recommended by the
Federal Accounting Standards Advisory Board (FASAB). The FASAB
has been recognized by the American Institute of Certified
Public Accountants (AICPA) as the official accounting standard
set for the Federal government. These standards have been
agreed to, and published by the Director of the Office of
Management and Budget, the Secretary of the Treasury, and
the Comptroller General.
B. Reporting Entity
Established in 1961 by President John F. Kennedy, USAID is
the independent U.S. Government agency that provides economic
development and humanitarian assistance to advance United
States economic and political interests overseas.
Programs
The statements present the financial activity of various
programs and accounts managed by USAID. The programs include
the Iraq Relief and Reconstruction Fund, Economic Support
Fund, Development Assistance, Assistance for the New Independent
States of the Former Soviet Union, Special Assistance Initiatives,
International Disaster Assistance, Child Survival and Disease,
Transition Initiatives, and Direct and Guaranteed Loan Programs.
This classification is consistent with the Budget of the
United States.
Iraq Relief and Reconstruction Fund
This fund supports necessary expenses related to providing
humanitarian assistance in and around Iraq and to carrying
out the purposes of the Foreign Assistance Act of 1961 for
rehabilitation and reconstruction in Iraq. These include costs
of: (1) water/sanitation infrastructure; (2) feeding and food
distribution; (3) supporting relief efforts related to refugees,
internally displaced persons, and vulnerable individuals,
including assistance for families of innocent Iraqi civilians
who suffer losses as a result of military operations; (4)
electricity; (5) healthcare; (6) telecommunications; (7) economic
and financial policy; (8) education; (9) transportation; (10)
rule of law and governance; (11) humanitarian de-mining; and
(12) agriculture.
Economic Support Fund
Programs funded through this account provide economic assistance
to select countries in support of efforts to promote stability
and U.S. security interests in strategic regions of the world.
Development Assistance
This program provides economic resources to developing countries
with the aim of bringing the benefits of development to the
poor. The program promotes broad-based, self-sustaining economic
growth and supports initiatives intended to stabilize population
growth, protect the environment and foster increased democratic
participation in developing countries. The program is concentrated
in those areas in which the United States has special expertise
and which promise the greatest opportunity for the poor to
better their lives.
Assistance for the New Independent States of the Former
Soviet Union
This account provides funds for a program of assistance to
the independent states that emerged from the former Soviet
Union. These funds support U.S. foreign policy goals of consolidating
improved U.S. security; building a lasting partnership with
the New Independent States; and providing access to each other’s
markets, resources, and expertise.
Special Assistance Initiatives
This program provides funds to support special assistance
activities. The majority of funding for this program was for
democratic and economic restructuring in Central and Eastern
European countries consistent with the objectives of the Support
for East European Democracy (SEED) Act. All SEED Act programs
support one or more of the following strategic objectives:
promoting broad-based economic growth with an emphasis on
privatization, legal and regulatory reform and support for
the emerging private sector; encouraging democratic reforms;
and improving the quality of life including protecting the
environment and providing humanitarian assistance.
International Disaster Assistance
Funds for the International Disaster Assistance Program provide
relief, rehabilitation, and reconstruction assist-ance to
foreign countries struck by disasters such as famines, floods,
hurricanes and earthquakes. The program also provides assistance
in disaster preparedness, and prevention and mitigation.
Child Survival and Disease
This program provides economic resources to developing countries
to support programs to improve infant and child nutrition,
with the aim of reducing infant and child mortality rates;
to reduce HIV transmission and the impact of the HIV/AIDS
pandemic in developing countries; to reduce the threat of
infectious diseases of major public health importance such
as polio, and malaria; and to expand access to quality basic
education for girls and women.
Transition Initiatives
This account funds humanitarian programs that provide post-conflict
assistance to victims of natural and man-made disasters. Until
FY 2001, this type of assistance was funded under the International
Disaster Assistance account.
Direct and Guaranteed Loans:
- Direct Loan Program
These loans are authorized under Foreign Assistance Acts,
various predecessor agency programs, and other foreign assistance
legislation. Direct Loans are issued in both U.S. dollars
and the currency of the borrower. Foreign currency loans
made “with maintenance of value” place the risk
of currency devaluation on the borrower, and are recorded
in equivalent U.S. dollars. Loans made “without maintenance
of value” place the risk of devaluation on the U.S.
Government, and are recorded in the foreign currency of
the borrower.
- Urban and Environmental Program
The Urban and Environmental (UE) program, formerly the Housing
Guarantee Program, extends guarantees to U.S. private investors
who make loans to developing countries to assist them in
formulating and executing sound housing and community development
policies that meet the needs of lower income groups.
- Micro and Small Enterprise Development Program
The Micro and Small Enterprise Development (MSED) Program
supports private sector activities in developing countries
by providing direct loans and loan guarantees to support
local micro and small enterprises. Although the MSED program
is still active, the bulk of USAID’s new loan guarantee
activity is handled through the Development Credit Authority
(DCA) program.
- Israeli Loan Guarantee Program
Congress enacted the Israeli Loan Guarantee Program in Section
226 of the Foreign Assistance Act to support the costs for
immigrants resettling to Israel from the former Soviet Union,
Ethiopia, and other countries. Under this program, the U.S.
Government guaranteed the repayment of up to $10 billion
in loans from commercial sources, to be borrowed in $2 billion
annual increments. Borrowing was completed under the program
during Fiscal Year 1999, with approximately $9.2 billion
being guaranteed. Guarantees are made by USAID on behalf
of the U.S. Government, with funding responsibility and
basic administrative functions guarantees for Israel, not
to exceed $9 billion and $1.3 billion in guarantees were
resting with USAID. In FY 2003, Congress authorized
a second portfolio of loan issued under this portfolio during
FY 2003.
- Ukraine Guarantee Program
The Ukraine Export Credit Insurance Program was established
with the support of the Export-Import Bank of the U.S. to
assist Ukrainian importers of American goods. The program
commenced operations in Fiscal Year 1996 and expired in
Fiscal Year 1999. The Ukraine Financing Account was closed
out in FY 2002.
- Development Credit Authority
The first obligations for USAID’s new Development
Credit Authority (DCA) were made in FY 1999. DCA allows
missions and other offices to use loans and loan guarantees
to achieve their development objectives when it can be shown
that: 1) the project generates enough revenue to cover the
debt service including USAID fees, 2) there is at least
50% risk-sharing with a private-sector institution, and
3) the DCA guarantee addresses a financial market failure
in-country and does not “crowd-out” private
sector lending. DCA can be used in any sector and by any
USAID operating unit whose project meets the DCA criteria.
DCA projects are approved by the Agency Credit Review Board
and the Chief Financial Officer.
- Loan Guarantees to Egypt Program
The Loan Guarantees to Egypt Program was established under
the Emergency Wartime Supplemental Appropriations Act, 2003.
Under this program, the U.S. Government was authorized to
issue an amount not to exceed $2 billion in loan guarantees
to Egypt during the period beginning March 1, 2003 and ending
September 30, 2005. $1.25 billion in new loan guarantees
were issued in fiscal year 2005 before the expiration of
the program.
Fund Types
The statements include the accounts of all funds under USAID’s
control. Most of the fund accounts relate to general fund
appropriations. USAID also has special fund, revolving fund,
trust fund, deposit funds, capital investment fund, receipt
account, and budget clearing accounts.
General fund appropriations and the Special fund are used
to record financial transactions under Congressional appropriations
or other authorization to spend general revenue.
Revolving funds are established by law to finance a continuing
cycle of operations, with receipts derived from such operations
usually available in their entirety for use by the fund without
further action by Congress.
Trust funds are credited with receipts generated by the terms
of the trust agreement or statute. At the point of collection,
these receipts are unavailable, depending upon statutory requirements,
or available immediately.
The capital investment fund contains no year funds to provide
the Agency with greater flexibility to manage investments
in technology systems and facility construction that the annual
appropriation for Operating Expenses does not allow.
Deposit funds are established for (1) amount received for
which USAID is acting as a fiscal agent or custodian, (2)
unidentified remittances, (3) monies withheld from payments
for goods or services received, and (4) monies held waiting
distribution on the basis of legal determination.
C. Basis of Accounting
Transactions are recorded on both an accrual and budgetary
basis. Under the accrual basis, revenues are recognized when
earned and expenses are recognized when a liability is incurred,
without regard to receipt or payment of cash. Budgetary accounting
facilitates compliance with legal constraints on, and controls
of, the use of federal funds. The accompanying Balance Sheet,
Statement of Net Cost, and Statement of Changes in Net Position
have been prepared on an accrual basis. The Statement of Budgetary
Resources has been prepared in accordance with budgetary accounting
rules. Finally, the Statement of Financing has been prepared
to reconcile budgetary to financial (proprietary) accounting
information.
D. Budgets and Budgetary Accounting
The components of USAID’s budgetary resources include
current budgetary authority (that is, appropriations and borrowing
authority) and unobligated balances remaining from multi-year
and no-year budget authority received in prior years. Budget
authority is the authorization provided by law to enter into
financial obligations that result in immediate or future outlays
of federal funds. Budgetary resources also include reimbursement
and other income (that is, spending authority from offsetting
collections credited to an appropriation of fund account)
and adjustments (that is, recoveries of prior year obligations).
Unobligated balances associated with appropriations that
expire at the end of the fiscal year remain available for
obligation adjustments, but not new obligations, until that
account is canceled. When accounts are canceled five years
after they expire, amounts are not available for obligations
or expenditure for any purpose and are returned to Treasury.
Pursuant to Section 511 of USAID’s Appropriations Act
for certain purposes under the Foreign Assistance Act of 1961,
as amended, funds shall remain available for obligation for
an extended period if such funds are initially obligated within
their initial period of availability.
E. Revenues and Other Financing Sources
USAID receives the majority of its funding through congressional
appropriations — annual, multi-year, and no-year appropriations
— that may be used within statutory limits. Appropriations
are recognized as revenues at the time the related program
or administrative expenses are incurred. Appropriations expended
for capitalized property and equipment are not recognized
as expenses. In addition to funds warranted directly to USAID,
the agency also receives allocation transfers from the U.S.
Department of Agriculture (USDA) Commodity Credit Corporation,
the Executive Office of the President, and the Department
of State.
Additional financing sources for USAID’s various credit
programs and trust funds include amounts obtained through
collection of guaranty fees, interest income on rescheduled
loans, penalty interest on delinquent balances, permanent
indefinite borrowing authority from U.S. Treasury, proceeds
from the sale of overseas real property acquired by USAID,
and advances from foreign governments and international organizations.
Revenues are recognized as financing sources to the extent
that they were payable to USAID from other agencies, other
governments and the public in exchange for goods and services
rendered to others. Imputed revenues are reported in the financial
statements to offset the imputed costs.
F. Fund Balance with the U.S. Treasury
Cash receipts and disbursements are processed by the U.S.
Treasury. The fund balances with Treasury are primarily appropriated
funds that are available to pay current liabilities and finance
authorized purchase commitments, but they also include revolving,
deposit, and trust funds.
G. Foreign Currency
The Direct Loan Program has foreign currency funds, which
are used to disburse loans in certain countries. Those balances
are reported at the U.S. dollar equivalents using the exchange
rates prescribed by the U.S. Treasury. A gain or loss on translation
is recognized for the change in valuation of foreign currencies
at year-end. Additionally, some USAID host countries contribute
funds for the overhead operation of the host mission and the
execution of USAID programs. These funds are held in trust
and reported in U.S. dollar equivalents on the balance sheet
and statement of net costs.
H. Accounts Receivable
Accounts receivable consist of amounts due mainly from foreign
governments but also from other Federal agencies and private
organizations. USAID regards amounts due from other Federal
agencies as 100 percent collectible. The Agency establishes
an allowance for uncollectible accounts receivable for non-loan
or revenue generating sources that have not been collected
for a period of over one year.
I. Direct Loan and Loan Guarantees
Loans are accounted for as receivables after funds have been
disbursed. For loans obligated before October 1, 1991 (the
pre-credit reform period), loan principal, interest, and penalties
receivable are reduced by an allowance for estimated uncollectible
amounts. The allowance is estimated based on a net present
value method prescribed by OMB that takes into account country
risk and projected cash flows.
For loans obligated on or after October 1, 1991, the loans
receivable are reduced by an allowance equal to the net present
value of the cost to the USG of making the loan. This cost,
known as “subsidy”, takes into account all cash
inflows and outflows associated with the loan, including the
interest rate differential between the loans and Treasury
borrowing, the estimated delinquencies and defaults net of
recoveries, and offsets from fees and other estimated cash
flows. This allowance is re-estimated when necessary and changes
reflected in the operating statement.
Loans have been made in both U.S. dollars and foreign currencies.
Loans extended in foreign currencies can be with or without
“Maintenance of Value” (MOV). Those with MOV place
the currency exchange risk upon the borrowing government;
those without MOV place the risk on USAID. Foreign currency
exchange gain or loss is recognized on those loans extended
without MOV, and reflected in the net credit programs receivable
balance.
Credit program receivables also include origination and annual
fees on outstanding guarantees, interest on rescheduled loans
and late charges. Claims receivables (subrogated and rescheduled)
are due from foreign governments as a result of defaults for
pre-1992 guaranteed loans. Receivables are stated net of an
allowance for uncollectible accounts, determined using an
OMB approved net present value default methodology.
While estimates of uncollectible loans and interest are made
using methods prescribed by OMB, the final determination as
to whether a loan is collectible is also affected by actions
of other U.S. Government agencies.
J. Advances and Prepayments
Funds disbursed in advance of incurred expenditures are recorded
as advances. Most advances consist of funds disbursed under
letters of credit to contractors and grantees. The advances
are liquidated and recorded as expenses upon receipt of expenditure
reports from the recipients.
K. Inventory and Related Property
USAID’s inventory and related property is comprised
of operating materials and supplies. Some operating materials
and supplies are held for use and consist mainly of computer
paper and other expendable office supplies not in the hands
of the user. USAID also has materials and supplies in reserve
for foreign disaster assistance stored at strategic sites
around the world. These consist of tents, vehicles, and water
purification units. The Agency also has birth control supplies
stored at several sites.
USAID’s office supplies are deemed items held for use
because they are tangible personal property to be consumed
in normal operations. Agency supplies held in reserve for
future use are not readily available in the market, or there
is more than a remote chance that the supplies will be needed,
but not in the normal course of operations. Their valuation
is based on cost and they are not considered “held for
sale.” USAID has no supplies categorizable as excess,
obsolete, or unserviceable operating materials and supplies.
L. Property, Plant and Equipment
USAID capitalizes all property, plant and equipment that
have an acquisition cost of $25,000 or greater and a useful
life of two years or more. Acquisitions that do not meet these
criteria are recorded as operating expenses. Assets are capitalized
at historical cost and depreciated using the straight-line
method. Real property is depreciated over 20 years, nonexpendable
personal property is depreciated over 3 to 5 years, and capital
leases are depreciated according to the terms of the lease.
The Agency operates land, buildings, and equipment that are
provided by the General Services Administration. Rent for
this property is expensed. Internal use software that has
development costs of $300,000 or greater is capitalized. Deferred
maintenance amounts are immaterial with respect to the financial
statements.
M. Liabilities
Liabilities represent the amount of monies or other resources
that are likely to be paid by USAID as the result of transactions
or events that have already occurred. However, no liability
can be paid by the Agency without an appropriation or borrowing
authority. Liabilities for which an appropriation has not
been enacted are therefore classified as liabilities not covered
by budgetary resources (unfunded liabilities), and there is
no certainty that the appropriations will be enacted. Also,
these liabilities can be abrogated by the U.S. Government,
acting in its sovereign capacity.
N. Liabilities for Loan Guarantees
The Credit Reform Act (CRA) of 1990, which became effective
on October 1, 1991, has significantly changed the manner in
which USAID’s loan programs finance their activities.
The main purpose of CRA was to more accurately measure the
cost of Federal credit programs and to place the cost of such
programs on a budgetary basis equivalent to other Federal
spending. Consequently, commencing in fiscal 1992, USAID cannot
make new loans or guarantees without an appropriation available
to fund the cost of making the loan or guarantee. This cost
is known as “subsidy.”
For USAID’s loan guarantee programs, when guarantee
commitments are made, an obligation for subsidy cost is recorded
in the program account. This cost is based on the net present
value of the estimated net cash outflows to be paid by the
Program as a result of the loan guarantees, except for administrative
costs, less the net present value of all cash inflows to be
generated from those guarantees. When the loans are disbursed,
the subsidy cost is disbursed from the program account to
a financing account.
For loan guarantees made before the CRA (pre-1992), the liability
for loan guarantees represents an unfunded liability. Footnote
6 presents the unfunded amounts separate from the post-1991
liabilities. The amount of unfunded liabilities also represents
a future funding requirement for USAID. The liability is calculated
using a reserve methodology that is similar to OMB prescribed
method for post-1991 loan guarantees.
O. Annual, Sick, and Other Leave
Annual leave is accrued as it is earned and the accrual is
reduced as leave is taken. Each year, the balance in the accrued
annual leave account is adjusted to reflect current pay rates.
To the extent that current or prior year appropriations are
not available to fund annual leave earned but not taken, funding
will be obtained from future financing sources. Sick leave
and other types of leave are expensed as taken.
P. Retirement Plans and Post Employment Benefits
USAID recognizes its share of the cost of providing future
pension benefits to eligible employees over the period of
time the employees provide the related services. The pension
expense recognized in the financial statements equals the
current service cost for USAID employees for the accounting
period less the amount contributed by the employees. The measurement
of the service cost requires the use of an actuarial cost
method and assumptions. OPM administers these benefits and
provides the factors that USAID applies to report the cost.
The excess of the pension expense over the amount contributed
by USAID and employees represents the amount being financed
directly through the Civil Service Retirement and Disability
Fund administered by OPM. This cost is considered imputed
cost to USAID.
USAID recognizes a current-period expense for the future
cost of post retirement health benefits and life insurance
for its employees while they are still working. USAID accounts
for and reports this expense in its financial statements in
a manner similar to that used for pensions, with the exception
that employees and USAID do not make contributions to fund
these future benefits.
Federal employee benefit costs paid by OPM and imputed by
USAID are reported on the Statement of Financing and the Statement
of Net Cost.
Q. Commitments and Contingencies
A contingency is an existing condition, situation or set
of circumstances involving uncertainty as to possible gain
or loss to USAID. The uncertainty will ultimately be resolved
when one or more future events occur or fail to occur. For
pending, threatened or potential litigation, a liability is
recognized when a past transaction or event has occurred,
a future outflow or other sacrifice of resources is likely,
and the related future outflow or sacrifice of resources is
measurable. For other litigations, a contingent liability
is recognized when similar events occur except that the future
outflow or other sacrifice of resources is more likely than
not. Footnote 15 identifies commitments and contingency liabilities.
R. Non-entity Assets
Net position is the residual difference between assets and
liabilities. It is composed of unexpended appropriations and
cumulative results of operations.
- Unexpended appropriations are the portion of the appropriations
represented by undelivered orders and unobligated balances.
- Cumulative results of operations are also part of net
position. This account reflects the net difference between
(1) expenses and losses and (2) financing sources, including
appropriations, revenues and gains, since the inception
of the activity.
S. Non-entity Assets
Non-entity fund balances are amounts in Deposit Fund accounts.
These include such items as: funds received from outside sources
where the government acts as fiscal agent, monies the government
has withheld awaiting distribution based on legal determination,
and unidentified remittances credited as suspense items outside
the budget. For USAID, non-entity assets are minimal in amount
as reflected in Note 3, composed solely of accounts receivables,
net of allowances.
T. Agency Costs
USAID costs of operations are comprised of program and operating
expenses. USAID/Washington program expenses by goal are obtained
directly from Phoenix, the Agency general ledger. Mission
related program expenses by goal area are obtained from the
Mission Accounting and Control system (MACS). A cost allocation
model is used to distribute operating expenses, including
Management Bureau, Global Development Alliance, Trust Funds
and Support Offices costs to specific goals. Expenses related
to Credit Reform and Revolving Funds are directly applied
to specific agency goals based on their objectives.
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